by James A. Bacon
Gov. Bob McDonnell delivered a competent if uninspired State of the Commonwealth address yesterday, sounding the broad themes of restoring fiscal integrity to the state budget and harnessing the power of state government to create jobs. For the most part, his agenda reflects the conventional thinking that comes out of Virginia’s Republican Party these days. McDonnell’s proposals will bring incremental progress. The problem is, the times demand radical change.
Fiscal conservatism. The most encouraging aspect of McDonnell’s legislative agenda is its tight-fisted approach to the budget. In the most significant of his proposals, the governor proposes upping the two-year contribution to state pensions to $2.21 billion, including $876 million from the General Fund, more than doubling the employer contribution from the last budget. He’s putting the squeeze on local governments to make good on their obligations. And he will propose structural reforms to the pension plan that will call upon employees themselves to make some changes, as yet unspecified.
The governor also makes progress in backing the state out of the accelerated sales tax collections imposed on the retail industry by another $50 million a year, with the goal of ridding the despicable accounting gimmick entirely by the time he leaves office. He proposes doubling the Rainy Day Fund to more than $600 million by FY 2014, and he is asking lawmakers to set up a $50 million Federal Action Contingency Trust (FACT) Fund to handle impacts from future federal spending cuts. Apparently, this will be an economic development slush fund to be used to “help diversify our economy.”
McDonnell made conservative revenue assumptions, announced no new taxes, recommended no new long-term debt (even though the state has nearly $500 million in unused debt capacity,) and proposed only modest new spending initiatives.
The only fiscal negative — and it is a big one — is his insistence upon institutionalizing the use of General Fund revenues to cover transportation spending on the grounds that transportation is a “core function of government.” In doing so, he moves away from a user-pays system to a general subsidy system, which is the antithesis of fiscal conservatism. While previous governors had raided General Fund episodically, McDonnell’s proposal would enshrine the use of General Fund revenue for transportation as a permanent budgetary feature.
Higher ed. On the positive side, McDonnell proposes to “cement the direct nexus between higher education and job creation” by rewarding state colleges and universities for increasing the number of degrees, especially in science/technology/mathematics fields so vital for sustainable economic growth. Recognizing the growing problem of college drop-outs, he also insists colleges improve their graduation rates. On the negative side, he wants to increase the number of new degrees granted by 100,000 over the next 15 years — a totally arbitrary number that bears no connection to the number of young Virginians who are academically equipped from their high-school experience to do college-level work.
K-12. As McDonnell noted in his address, Virginia has increased total funding for public education by 41% over the past decade while enrollment increased only 6 percent. “We will seek more accountability, choice, rigor and innovation.” Repealing the King’s Dominion law is a no-brainer. Championing virtual schools is a good idea and shouldn’t generate too much controversy. But the governor grabbed the tiger by the tail when he proposed reforming the system for evaluating teachers and principals. No sooner had he announced his idea last week than reactionary “progressives” across the state attacked him for “blaming the teachers” for the woes of K-2 education. This, I predict, is where Democrats and liberals will draw the line in the sand. Teacher/principal evaluations unoubtedly will be the most contentious issue of the 2012 General Assembly session and a true test of McDonnell’s grit.
Odds and ends. The governor proposes a number of efficiency-in-government reforms which, though meritorious, are fiscally inconsequential. He has packaged some small-bore initiatives under the rubric of making Virginia “the energy capital of the east coast,” a silly and unattainable goal. He proposes modest funding increases for mental health, which probably needs it.
Road not taken. McDonnell continues to define Virginia’s transportation woes as an issue of insufficient funding. His solution: Find more money without raising taxes. He has missed the opportunity to enact fundamental reform: (1) aligning transportation planning with land use planning, (2) creating a user-pays system for financing transportation, and (3) developing a methodology for prioritizing projects on a Return on Investment basis (congestion mitigated, safety improved, economic value created). Virginia will spend more money on transportation. Whether the money will be well spent is another issue entirely.
Bed rest for health care. Health care is another missed opportunity. Last year McDonnell enacted a package of reforms “to improve the quality, cost effectiveness and program integrity of the Medicaid program” — which went largely unheralded in the press. This year, the state will focus on implementing those reforms. Fair enough. But the health care system is much bigger than Medicaid. The potential exists to transform the privately insured health care system, thanks to one of the few worthwhile changes enacted by Obamacare, by compiling more information about the cost and quality of medical procedures and make it available to practitioners and patients — precisely the kind of data required to create a functioning market in health care. Conservatives supposedly believe in market-based health care. Well, a prerequisite to a market-based health care is to create functioning markets, which requires putting basic information into the hands of consumers. If conservatives don’t act to fix runaway health care costs, liberals will.
Economic development opportunities lost. McDonnell recognizes the connection between education, human capital and job creation. He sees how a vibrant energy sector can create jobs. He believes that transportation infrastructure can facilitate commerce and trade. Give him points for that. But he misses the connection between quality of life and the recruitment/retention of highly talented individuals (the creative class) who contribute disproportionately to growth in a knowledge economy driven by productivity and innovation. While McDonnell pursues a deal-oriented approach to recruiting corporate investment, usually requiring state subsidies, he overlooks the potential to create the kinds of more livable, more sustainable communities that the “creatives” look for. Why wouldn’t conservatives champion a subsidy-free model of economic development?
Admittedly, McDonnell is hardly alone in his neglect of creative-class issues. Virginia is way behind the curve in making itself a magnet for the nation’s innovators. Just consider it another opportunity lost.